US Industries' Two-Front Battle

By
Murray Weidenbaum. Murray Weidenbaum is director of the Center for the Study of American Business at Washington University in St. Louis. /
September 28, 1994

AMERICAN industry constantly fights a two-front war. The obvious opponent is the foreign competitor. The second is our own government. Consider the pervasive tax and regulatory obstacles placed in the way of United States business - especially high-tech companies - by a host of federal, state, and local governments. These are often egged on by a bewildering array of self-styled public-interest groups.

The most difficult problem faced by some of our key high-tech industries - biotechnology, pharmaceuticals, and nuclear power - has been the thicket of government reviews and approvals. No one agency can give an OK to go ahead. But the failure to receive the necessary authorization from any one of them can literally halt production.

Not surprisingly, many high-powered American firms increasingly are turning to foreign markets - not only for selling their US production, but for investment in overseas R&amp;D, production, and distribution. This makes good economic sense. Rapid advances in transportation and communication have broadened the markets for many products and services. Likewise, capital, information, labor, and other key production inputs are increasingly transnational. Many of our companies make more of their new investments overseas than here at home. Some of the best known American companies have deployed a majority of their assets overseas.

But the growing internationalization of production is regrettable - to the extent that it is caused by increasingly coercive government in the US. Take the energy company that is forced to explore in faraway Kazakhstan, or the mining enterprise that has to move to Bolivia, or the medical-devices firm that finds it expedient to set up its new lab in the Netherlands, or the manufacturing corporation that is encouraged to build a new factory in Guangdong, China. Those companies are not the problem. Our government policy is.

Under these circumstances, there is an especially powerful attraction from areas such as Southeast Asia, which has become the most dynamic part of the global economy. American business planners cannot be oblivious to markets that register double-digit growth rates year after year and whose governments are encouraging rapid expansion of their private sectors. Current and former communist and totalitarian nations are moving toward the decentralization of power characteristic of the private marketplace. They are taking steps to encourage and attract new industry, including reductions in tax burdens and regulatory barriers. Meanwhile, the US is raising business taxation, regulation, and employer mandates.

Nevertheless, in many industries, American firms are still the world leaders. US firms rank No. 1 (in sales) in aerospace, apparel, beverages, chemicals, computers, food products, motor vehicles, paper products, petroleum, pharmaceuticals, photographic and scientific equipment, soap and cosmetics, and tobacco. Their future shares of world markets - and the resultant effects on domestic employment and income levels - will depend primarily on the individual actions of a host of business enterprises. Yet government decisions will exert a strong influence either to help or hinder.

Here are a few suggestions for regulatory reform.

* Congress should require cost-benefit analysis in each stage of the regulatory process - from writing statutes to issuing regulations to reviewing regulatory programs.

* Government officials should avoid ``legislative handcuffs'' by emphasizing objectives to be achieved rather than precise methods to be used in complying with regulation.